Differential analysis for machine replacement proposal

Obj. 1Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:

Old Machine
Cost of machine, eight-year life	$38,000
Annual depreciation (straight-line)	4,750
Annual manufacturing costs, excluding depreciation	12,400
Annual nonmanufacturing operating expenses	2,700
Annual revenue	32,400
Current estimated selling price of the machine	12,900

New Machine
Cost of machine, six-year life	$57,000
Annual depreciation (straight-line)	9,500
Estimated annual manufacturing costs, exclusive of depreciation	3,400

Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

Instructions

1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the differential income that would result over the six-year period if the new machine is acquired.

2. List other factors that should be considered before a final decision is reached.

3. 

AutoSaveFF SUHE: WRD FinMan 14e_PR 24(10)-2B Share Comments Insert insert Y A 27. Conditional Formatting Format as Table 2 Cell Styles = % , - Ideas Sort & Filter Format Sensitivity X Find & Select Home Insert Draw Page Layout Formulas Data Review View AA LIS Ev Paste B IU B Y A = $ A8 x fx Instructions A B C D E F G H I J K L 9 Answers are entered in the ce is with gray backgrounds 10 Cells with non-gray backgrounds are protected and cannot be edited. 11 An asterisk (*) will appear to the right of an incorrect entry. The essay answer wil nol be graded. 12 Enter a zero in cells you would otherwise leave blank M N O P R S T U V W X Y Z AA AB A Differential Effect Alternative 2) Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine November 8 Continue with Replace Old Machine Old Machine (Alternative 1) (Alternative 2) Revenues: Proceeds from sale of old machine Costs: Purchase price Annual manufacturing costs (6 yrs.) Income (loss) The proposal to replace the machine should be L [Key essay answer here] Pr. 24(10)-2B + E C - + 100%